In this troubled housing market, home buyers and sellers are dealing more and more with banks. Repossessions and short sales are requiring the banking market to become more directly involved in the sale of a home. I hope to point out some of the potential pitfalls when dealing with short sales and bank owned properties. Homes for Heroes
have a couple that has pretty much experienced every thing you can when dealing with a short sale.
Fresh and ready to take the challenge. Short Sales.
Let’s call them Katie and Steve, they are the perfect American couple. Both are members of the National Guard and Police Officers of a large metro city. They both have done tours of duty in Bosnia and Iraq. They approached Homes for Heroes looking to buy a house. They came to us because they had made an offer on a “short sale” home and waited for a response. Then waited some more. Then made a couple of phone calls. Then waited. After waiting they waited some more. Finally they got in the car and drove past the home they wished to own. Only to find it was inhabited by someone else who had purchased the home! How could that happen? Didn’t they offer the bank a legal commitment that by law would obligate them to purchase if accepted by the bank? How could they look for another home with that offering sitting out there? Shouldn’t the bank at least reject the offer by signature or at least by phone call so they could legally look for another home? This happened to them last winter. But read on, there is more fun to come.
By law, if you are a licensed Realtor, and you do not respond to a legal offer on a home you would be in violation of the law and would lose your state license. The bank, however, is not regulated by the same law and has no obligation to anyone offering to purchase the property. Keep this in mind when making an offer with a short sale. The patience of a sniper will be required, meaning you will be waiting for days on end just to get a hint of what the bank is doing with your offer.
Back to Katie and Steve. Working with their Homes for Heroes
agent they set out looking for homes. The first home they looked at they loved. A tribute to a good Realtor. They looked at several others but kept coming back to the first home they saw. It was in the area they wanted to live, it was the style and size they wanted, it was on a cul-de-sac… I could go on but I think you get the idea. It was everything they wanted and where they wanted it. So they sat down with their agent and started to put together a purchase agreement. While working with their Homes for Heroes
mortgage affiliate they found that they qualified for the asking price of the home but it would stretch their budget a little bit more than they expected. Being smart buyers, they passed on their dream home. They did not want to be in a position where they had to decide whether to pay the house payment or buy groceries. Plus they wanted to add to the family. Yes, they wanted to have puppies!!
Another round of house hunting took place and they had found their second dream home. Another tribute to the Realtor, she sure did know her clients. This was not as grand as their dream home but it was very close and met all their criteria. They decided they would make an offer on this home. The Realtor made a call to the listing agent and made it known that she would soon be bringing an offer to the table. She asked for the owner’s property disclosure and it was faxed over promptly. While reviewing the disclosure, she discovered that the offer would be subject to bank approval. That is the code words for “short sale”.
Helen, (the stunning and remarkable Realtor) set about to educate Katie and Steve that buying a “short sale” home was not a terrible thing as long as knew up front not to expect anything to happen with any sort of urgency. It was going to take longer than a normal sale because the banks are not Realtors or buyers and do not fully understand the concept of expediency. This was reflected in the offer by giving the bank 60 days to agree to the offered price. The offer they put together was good and solid. They saw no reason why the bank would balk at it or deny it. It was a full price offer with a pre-approved mortgage. Helen submitted the offer to the listing agent, who also agreed, it was a good offer and the bank should have no problem approving it. After all the bank had approved the listing price prior to the owner putting the house on the market.
In a normal real estate transaction, the home owner will receive the offer and either accept, counter or reject the offer within 24 to 48 hours, most of the time by the next day. A week went by with no response. Helen had called the listing agent for an update. “The bank has it and have not provided me with any further information.” Was the response. “Will you call me as soon as you hear anything, good or bad.” Helen requested then ended the call. She picked up the phone to let Katie and Steve know what was going on. Only having to wait one week the sniper patience was not marred. They accepted the update because they knew that the bank would get to it when they got to it.
Another week goes by. Update is the same as before. Katie and Steve are not too worried. They want to be in their new home by Christmas and it is only mid October. They wanted to close by December 1 as stated in the Purchase Agreement. The bank still had 6 weeks to get things wrapped up. Over the course of the next few weeks, Katie and Steve had put an ad in the paper to lease their town home. The ad stated it would be available January 2. That gave Katie and Steve a full month to get the place cleaned up for the new tenants.
About 4 weeks after putting in their offer, they got their first puppy. They named it after the base they were at in Iraq. They would take the puppy over to the new neighborhood to get used to the new smells. The updates to date were pretty much the same. It was now November 2 and Katie and Steve were wondering if they could start packing some of the non-essential items in preparation for their big move.
Helen would call the listing agent with more frequency to see if the bank could at least let them know if they should start looking for another home. Katie and Steve have signed a lease with a nice couple to move into their current residence. They were now legally obligated to be out of their town home by January 2. This time the update was a little different and offered a little bit of hope. The bank said everything was moving along fine and they should be able to close by December 1. This was the first acknowledgment from the bank that they had accepted the offer. With this information Katie and Steve let their worries take a back seat and they started to pick up the pace on their moving plans.
The week of Thanksgiving Helen had still not received a time and place for closing. With the holiday coming up and family gatherings to attend, they needed to know when and where they would be signing all the paperwork. The bank responded by confirming a time and place in the afternoon of December 1st. Katie and Steve confirmed the date with friends that would be helping them move and start packing in earnest to be ready for the truck they had reserved.
Morning of December 1, Helen receives a call from the listing agent telling her that the closing will have to be moved to December 7. The reason was that while the bank was going through the title work they found that the second mortgage on the home had been mistakenly recorded as the first. What this means is that with this mistake the bank could not legally approve of the sale because they were not technically the primary mortgage holder. They were working on getting that fixed and expected it to be fixed within the week. This was the first time Katie and Steve, upon hearing the news, showed how thin their patience was running. They had to call all their friends and reschedule in hopes that all could still make it. They also did not look forward to living out of boxes for the week. But as disciplined soldiers, they sucked it up and made good of a bad situation.
December 7, another call in the morning to Helen telling her that the two banks still have not settled on how the proceeds of the “short” sale would be split. The primary mortgage was smaller than the second mortgage and the second mortgage holder was trying to get the lion’s share of the proceeds. The primary mortgage holder seemed to think they had the upper hand because if the home went into foreclosure the second mortgage holder would get nothing and they were using that as a big lever. At this point Helen was starting to lose a professional attitude and was agonizing over how to tell Katie and Steve again their home would not be available again. Katie and Steve took the news very well, they asked when would they be able to sign, but this time if the date was missed they wanted the bank to know they would cancel the purchase agreement. The listing agent was made aware and offered to let Katie and Steve move in now and worry about the “paperwork” later. Helen advised this could be risky especially with the way the two banks could not come to an agreement. Katie and Steve declined to move and put everything on hold until they were holding title in hand.
A couple of days before Christmas there was still no agreement. On the 23rd the listing agent called Helen to inform her that the banks had made and agreement and they would try to close on the 26th. This would be cutting it short for Katie and Steve but they agreed and made plans for the 26th.
The 26th came and went without a closing. On January 2 Katie and Steve canceled their purchase agreement, much to the dismay of the listing agent. During this whole ordeal interest rates had dropped and with a buy down on the interest rate from the owner, Katie and Steve were able to put together a purchase agreement for their original dream home. They sent over the paper work and it was accepted and signed within 24 hours. Actually the whole deal took about 4 hours to put together and the waiting was just to see the signed papers. They moved in a week later and today they signed and received title for their dream home.
After a year and 2 failed short sales, Katie and Steve finally get a closing.
What happened to the 2nd choice? The home went into foreclosure, the second mortgage holder received nothing and the primary mortgage holder ended up selling the home for $170,000 less than the offer they had in hand. It just proves that they do not understand the whole concept of selling homes.
What is the difference between a short sale and a bank owned property? This is good information to know. It will help you with the trials and tribulations one may experience when dealing with banks. Bank owned means the home has gone through foreclosure proceedings and the title is legally and solely the banks. They have a house that is theirs and they pay the taxes and utilities on the property. The previous owner usually leaves the home in poor condition when they abandon the home. At times even taking the plumbing as they move out. These are a good deal on the market but often fall into the “fixer upper” category.
A short sale is when the owners of the home wish to sell the home but the market price will not cover the mortgage they own on the home. The owners notify the bank that they will not be able to cover the mortgage on the sale and ask the bank to cover any difference. If the bank agrees the home goes on the market as a “short” sale. The owners may or may not work with a Realtor and any offer they receive is sent to the bank for final approval. In the “short” sale the bank is trying to limit the amount of loss on the mortgage.
I think it is a safe bet to conclude that banks prefer short sales to foreclosures because at least they recoup a larger portion of their mortgage and during the sale process are not paying out money for taxes and utilities. The down side to this is the bank is not under any contract with a real estate company during the sale. The upside for the buyer on a “short sale” is that the home is usually in better shape than a home that is in foreclosure. The upside on a foreclosed home purchase is that it can be had a bargain prices and you are dealing with a licensed real estate company that has to follow the established rules. And always keep in mind, a short sale does not necessarily mean short time frame. The best scenario in these bizarre times (if at all possible) is to find a real seller! These people are waiting to work with you and are MOTIVATED. They have adjusted their selling price to compete with the banks. (Remember, the home has to appraise, and right now the appraisers have to be very careful, and use bank owned or short-sale proprieties in the immediate subject area for comps when arriving at the appraised value for your new home loan. Good Luck!